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Testimony by Senator Pete V. Domenici and Dr. Alice Rivlin, co-chairs of BPC's Debt Reduction Task Force, to the Senate Committee on Finance

Testimony by Senator Pete V. Domenici and Dr. Alice Rivlin, co-chairs of BPC's Debt Reduction Task Force, to the Senate Committee on Finance

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Published by: Bipartisan Policy Center on Jun 19, 2012
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Chairman Baucus, Ranking Member Hatch, and Members of the Committee, thank you for inviting us to testify on the comprehensive budget plan that the Bipartisan Policy
Center’s (BPC) Debt Reduction Task Force, which we co
-chair, has developed. The testimony we have submitted summarizes more than two years of deliberation by a nineteen-member Task Force representing a diverse cross-section of the nation from different sectors of the economy and with differing political views. It included former senior policy makers, ranging from former mayors of large cities to former governors of both parties, former Cabinet secretaries representing both parties, budget experts, and persons with backgrounds in business and labor. As we have testified several times during the past two years before various congressional committees, the United States continues to face two monumental challenges. Both are more critical than ever, as we see mounting tension in the global economy, highlighted by the financial challenges confronting Europe. First, the United States must accelerate economic growth and job creation. The recovery continues to be anemic, especially compared to recoveries from past recessions. We recognize the need for additional growth-enhancing policies to
accelerate the economy’s return to health and put people back to work.
Second, federal deficits and accumulating debt must be stabilized so that our national indebtedness grows more slowly than future gross domestic product (GDP). Our ratio of debt to GDP is too high and must come down to a less-risky level. These objectives reinforce each other. Faster growth will reduce deficits, and stabilizing the debt will cut future interest rates, reduce uncertainty, and enhance domestic economic growth. The Senate Finance Committee, with its wide-ranging  jurisdiction, will be a key player in addressing both imperatives. We recognize three realities: discretionary spending through the appropriations process has already been cut approximately to the levels recommended by the BPC plan; no progress has been made on the critical tax and entitlement reform elements of our plan; and, in less than six months, Congress and the American people will face a very serious economic blow, which Fed Chairman Ben Bernanke has characterized as
“the fiscal cliff.”
 Let us look more closely at each of those realities. The levels for discretionary defense and domestic spending set by the Budget Control Act of 2011, before any action triggered by the looming sequester in January, 2013, are approximately what our Task Force recommended. In short, we believe that further significant cuts in discretionary spending will do little to improve long run fiscal sustainability and risk harming investment, recovery, and future growth. So far, Congress has imposed virtually 100 percent of deficit reduction on less than 37 percent of the budget. The main drivers of future deficits and debt remain, as they have been for many years now, (a) Medicare, Medicaid, and to a lesser extent Social Security, all of which are within the jurisdiction of this committee, and (b) revenues, also within this
committee’s purview. We are heartened by the resolve that the leadership of this
committee has shown in setting out a path to address fundamental reform in both areas. We hope that our Task Force recommendations prove useful to the committee
as it tackles these difficult questions. We believe strongly that without fundamental reform in the tax code and in future entitlement benefits, America cannot avoid continuing the steady increase of our federal debt toward 100 percent of GDP in the next decade and 200 percent of GDP a decade later. These are clearly unsustainable levels and normally associated with serious economic and financial difficulties for any nation that strays so far from fiscal responsibility.
Fundamental Health Care Reform
The fundamental problem to be addressed by this committee is that federal spending is both greater and projected to rise faster than revenues for the foreseeable future, leaving a widening gap to be financed by borrowing. The primary drivers of increased spending are the health care programs, including Medicare, Medicaid, and the subsidies to be provided by the Affordable Care Act (ACA). Huge projected increases in the number of older people and persistent increases in health care spending per person account for this upward pressure on spending. Hence, reducing the rate of growth of these programs is essential to any long run debt stabilization plan. (See Chart) Spending on mandatory healthcare programs is projected to increase from 23 percent of non-interest federal spending in 2012 to 34 percent by 2021. No other programs conceivably could shrink enough to make budgetary room to accommodate health
care’s growth.
 Rising federal spending on health care is, of course, a part of the more general increase in spending for health care in the economy as a whole. Over time, national health spending has grown about 2 percentage points per year faster than GDP. Health care spending nationally is nearly 17 percent of GDP and rising. The objective of reforming federal health programs should not be to shift federal costs onto the private sector but to use the federal programs to lead the way toward more effective and less wasteful delivery of health care, no matter how that care is paid for.

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